Friday, January 18, 2013

Software Support Rights

In another forum an individual described a problem:
They had licensed software from company A and had five year’s of support purchased
Company A was sold to Company B
The five years of support has lapsed.
Company B wants to have both the support purchase terms and the license agreement terms changed to their standard terms as a condition of providing support.

The question was, can they do that and is it ethical, fair or reasonable?

This is a problem that could be prevented in the original license agreement. When you negotiate price and terms for support for an initial period, the question you should ask is what is the licensor’s obligation to provide you with support after that period, at what terms and at what cost. If you can get full agreement on what the terms or pricing for support will be in the future and include that as part of the agreement, as a minimum you should require the Licensor to allow you to purchase support in the future at prices and terms no different than their other customers. This doesn’t obligate the licensor to provide support, it only says that if they are selling support to other customers, they must sell that support to you at the same terms and pricing. As licensors may have pricing or discounts based upon volume, they might want to tweak the language so what they offer you is the same as customers purchasing similar volumes.

In acquiring the company A they acquired whatever obligations existed in the License Agreement. So if you had language about future support in the license, they must honor that without changing the original license. If the License Agreement was silent as to support in the future, technically the licensor does not have an obligation to provide support. Since the only way they can change the original license terms is with your agreement, they licensor is using the buyer’s need to purchase support as leverage to change the license agreement terms.
What the supplier is doing may not be ethical, but without a firm obligation that they must provide support, they are legally within their rights barring any local laws to the contrary.

If you don't have the right to future support built into the original license agreement at the existing support terms, they can clearly change the support terms. One question to consider is are they really attempting to change the original license terms for the previous licensed products or do they want the new terms to apply only on future licenses. The difference is significant. Changing terms for the future licenses may make sense. Trying to retroactively take rights away on previous purchases isn’t ethical. When Company B acquired Company A as part of their due diligence they would have been able to review existing licenses so they fully understood what they were acquiring. If those licenses presented costs or added risks to them, they had the opportunity to take that into account in the final purchase price they paid company A to acquire them.

Another thing to consider is while you cannot prevent a merger or acquisition from occurring, as corporate officers have a fiduciary responsibility to their shareholders. What you can also do is include certain rights if an acquisition or merger were to occur. For example, in this situation you might include a requirement that if the supplier was to merged or be acquired by a specific company, they must provide your with training and all materials needed to perform self maintenance. That provides the licensee more leverage for those future negotiations.